Fitch Ratings Says The 'Outlook For Clear Channel Is Negative'
May 2, 2014 at 6:07 AM (PT)
ALL ACCESS reported MONDAY (NET NEWS 4/28) that CLEAR CHANNEL COMMUNICATIONS, INC.'s newly-formed CCU ESCROW CORP. was making a private offer of $400 million in aggregate principal amount of senior notes due 2018.
The move, while buying extra time for CLEAR CHANNEL to deal with growing debt problems, didn't impress FITCH RATINGS, which has assigned a "C/RR6" rating to CCU ESCROW CORPORATION's $850 million 10% senior notes due 2018. FITCH wroye, "Proceeds from the offering, are expected to be used to fully redeem CLEAR CHANNEL COMMUNICATIONS, INC.'s 5.5% senior unsecured notes due 2014 ($409 million publicly outstanding), 4.9% senior unsecured notes due 2015 ($241 million) and fees related to the offering and note redemptions. In addition, CLEAR CHANNEL intends to redeem approximately $159 million of 2014 notes held at CC FINCO (an unrestricted subsidiary), with the proceeds of the redemption to be used for general corporate purposes."
So what does a "C/RR6" rating mean. FITCH simplified it, noting "The Rating Outlook for CLEAR CHANNEL is Negative." The ratings service implies CLEAR CHANNEL can pay its bills right now, but is piling up interest cost and won’t be able to reduce the debt load for several years.
Explaining further, FITCH "believes the company has sufficient liquidity (including cash on hand, monetization of repurchased and outstanding notes, and asset sales) to meet its debt service obligations. However, the transaction will result in increased interest cost, which FITCH estimates at approximately $50 million. FITCH expects free cash flow (FCF) to be negative over the next few years," and concludes, "FITCH does not expect a material amount of absolute debt reduction over the next several years, given the expected FCF [Free Cash Flow]. Instead, FITCH expects the company to continue to focus on extending or repaying its term loans via issuance at CLEAR CHANNEL and CCOH."
As of MARCH 31st, 2014, CLEAR CHANNEL had approximately $20.7 billion in consolidated debt, notes FITCH. Debt held at CLEAR CHANNEL was $15.8 billion and consisted of:
- $8.2 billion secured term loans ($1.9 billion in 2016 and $6.3 billion in 2019);
- $4.3 billion secured PGNs, maturing 2019-2021;
- $94 million senior unsecured 10.75% cash pay notes, maturing August 2016;
- $128 million senior unsecured 11%/11.75% PIK toggle notes, maturing August 2016;
- $1.6 billion in senior unsecured 12% cash pay / 2% PIK notes maturing in February 2021;
- $1.4 billion senior unsecured legacy notes, with maturities of 2014-2027.
Debt held at CLEAR CHANNEL WORLDWIDE HOLDINGS, INC. was $4.9 billion and consisted of:
- $2.7 billion in senior unsecured 6.5% notes due in 2022;
- $2.2 billion in subordinated 7.625% notes due 2020.